Ezel / Tax Rulings / CA

Could a competitive price reduction labeled 'freight equalization' be excluded from the sales- or use-tax measure?

Short answer Yes, when it was genuinely a discount and the purchaser paid none of that amount to either the vendor or the carrier. The label did not control.
State
CA
Ruling
Annotation 557.0240
Tax type
Sales and Use Tax
Issued
1955-01-12
Issued by
California State Board of Equalization
Requested by
Taxpayer asking about vendor price adjustments used to meet competition (identity redacted)
Topics
discounts price reduction competition sales tax measure use tax measure
Source
View Original PDF

Apply this to your situation

This page answers the general question as of 1955. Ask about yours and see what current California tax law says, with citations.

Currency note: this ruling is from 1955
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This January 12, 1955 letter addressed vendor price reductions used to meet competition and called 'freight equalization.' Its rule depended on the purchaser paying none of the reduced amount to either the vendor or carrier. CDTFA says statutory law controls if it conflicts with an annotation. Invoice presentation, actual payments, discount substance, carrier charges, title timing, related agreements, and current law can change the result.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.
View original ruling (PDF)

Plain-English summary

A vendor reduced its price to meet competition and labeled the adjustment “freight equalization.” California agreed that the amount was a discount rather than a taxable freight payment.

The key assumption was that the purchaser did not pay the equalization amount, or any part of it, to either the vendor or the carrier. Under that condition, the price reduction was excluded from both the sales-tax and use-tax measures regardless of its label.

Common questions

Did the words “freight equalization” determine the result?

No. The substance of the price reduction controlled.

What payment fact was required?

The purchaser could not pay any of the excluded amount to the vendor or carrier.

Did the rule cover both sales tax and use tax?

Yes.

Source

Original ruling text

557.0240

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
January 12, 1955
Dear REDACTED TEXT,
In your letter of January 5, 1955, you further explain the problem which was the object of our letter of December 20, 1954, regarding price adjustments made by your vendors in order to meet competition. In the example given in your letter, we concur in your opinion that the freight equalization constitutes a discount, the amount of which is not required to be included in the measure of the sales tax or the use tax. This is on the assumption that neither the amount of the freight equalization nor any part thereof is paid by the vendee to the vendor or the carrier. Putting this in the form of a rule, as request by you, we would state: The measure of the sales tax and use tax does not include the amount of price reductions or discounts to meet competition, whether labeled “freight equalization” or otherwise, which amount is not paid by the purchaser to either carrier or vendor. Very truly yours, E. H. Stetson Tax Counsel

EHS:tj
cc:

San Francisco – Tax Administrator

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